Procter & Gamble Company (The)

Good morning and welcome to Procter & Gamble's quarter-end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website www.pginvestor.com a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Andre Scholten.

Good morning, everyone. Joining me on the call today is Shailesh Chajurica, Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. I will start with an overview of results for the second quarter of fiscal 26, and Shailesh will discuss strategy, innovation, and focus areas as we start calendar year 2026. I'll close with guidance for fiscal 26, and then we'll take your questions. As we expected, second quarter top line results heavily reflect underlying market trends and impacts from base period dynamics. As a reminder, the base period included trade and consumer pantry loading driven by port strikes and hurricanes in early October and the fear of additional port strikes in late December. The biggest impacts were on the baby, feminine, and family care sector and the fabric and home care sector. These base period impacts were concentrated in the U.S. market The balance of the company grew organic sales nearly 3%, with almost all regions outside the US growing or accelerating in the quarter. Bottom line results followed the top line as we continue to prioritize full investment in the business. We anticipated this would be the softest quarter of the fiscal year, and we remain confident in stronger growth in the back half. So moving to the details, organic sales were in line with prior year. Volume was down one point, pricing up a point, and mix was flat for the quarter. Seven of ten product categories held or grew organic sales. Hair care grew mid-single digits. Skin and personal care, personal health care, home care, and oral care were each up low single digits. Grooming and fabric care were each in line with a year ago. Baby care and feminine care were each down low singles, and family care was down approximately 10%, primarily due to the base period dynamics we described. As a side note, organic sales excluding family care were up 1% for the quarter. Seven of 10 regions grew organic sales. Focus markets were down 1%. Organic sales in North America were down 2%. Volume was down three points, including a roughly two-point headwind from the base period trade inventory impacts I mentioned. Price mix added a point of growth. European-focused market organic sales were up 1%. Strong growth in France, Spain, and Italy, largely offset by a softer period in Germany. Greater China organic sales grew 3%, another quarter of growth in what remains a challenging consumer environment. Pampers and SK2 led the growth, each up mid-teens or more. Enterprise markets grew mid-single digits for the quarter, Latin America organic sales were up 8 percent, with solid growth across Mexico, Brazil, and the balance of smaller markets in the region. Organic sales in the Europe enterprise market region were up 6 percent versus prior year, and the Asia Pacific, Middle East, Africa enterprise region grew 2 percent. Global aggregate market share was down 20 basis points. Twenty-five of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.88 in line with prior year. On a currency neutral basis, core EPS was $1.85. Core growth margin was down 50 basis points and core operating margin was down 70 basis points versus prior year. Strong productivity improvement of 270 basis points with healthy reinvestment in innovation and demand creation. Currency neutral core operating margin was down 80 basis points. Adjusted pre-cash flow productivity was 88%, and we returned $4.8 billion of cash to share owners this quarter, $2.5 billion in dividends, and $2.3 billion in share repurchases. In summary, we've now completed what we fully expected will be the softest quarter of the fiscal year. We have strong innovation and productivity plans for the back half of the year. We continue to invest in creating superior propositions for our consumers and retail partners. with relevant innovation, powerful brand campaigns across every touchpoint, and continuously improving in-market execution across all channels and platforms. We are fully activated. It's working. So we move with confidence into half two of the fiscal year. And with that, I'll turn it over to Shailesh.

Shailesh Patel- Thanks, Andre. Good morning, everyone. I want to start by underscoring the point Andre just made. We are confident the interventions and investments we are making now will improve our near-term performance. Strong innovation supported by sharper consumer communication and retail execution. We are already seeing strong results in parts of the business that have made these near-term interventions. Greater China Baby Care was one of the first categories to make a step change and continues to lead growth of the premium and super premium segments of the market behind consumer insight-driven innovation and brand communication. Chinese parents want only the best for their baby, softness and comfort in addition to dryness. The China team created a product that delivers on this insight from first seeing and touching the packaging to feeling the diaper on their baby. They leverage the Chinese history with silk. The shiny, soft yet strong, luxurious material has been a status symbol for more than 2,000 years. Pampus Prestige is the only leading diaper brand that has real silk ingredients in the product, delivering the ultimate experience of skin comfort and protection. The shiny soft-feel package conveys superiority at first touch. Reframing our superior premium line has driven Greater China Baby Care to double-digit organic sales growth over the past 18 months and increased share nearly three points. More recently, our Mexico fabric enhancers team has disrupted a sleepy category through deep consumer understanding. Mexican consumers describe the gold standard smell of clean as rich, tasty, fruity, and floral, like the scents from shampoos. Downy Intense leverages our internal perfume innovation expertise to create the new high intensity perfume. The packaging highlights the intensity of fragrance blooming on the bottle like a flower, Brand communication drives awareness of an experience of 24-7 smelling like freshly washed hair. In-store execution of impactful displays with stopping power is increasing trial. These deep consumer insights driving innovation and executed with sharper brand communication and retail execution has spurred Mexico fabric and answer category growth and led Downey to double-digit organic sales growth and over two points of value share growth. Other examples where we've accelerated results include the Brazil hair care business, U.S. Old Spice, and U.S. liquid laundry detergents businesses. Most of these interventions are starting now in the U.S., the biggest, most impactful part of the business. We'll go deeper on these at the CAGNI conference next month. While we work to improve our near-term results, we've also begun a longer-term reinvention of P&Gs. Think of this as the next important phase of constructive disruption that will create and extend our competitive advantages in each element of our strategy. We remain fully committed to the integrated growth strategy that has enabled us to deliver significant growth and value creation over the better part of the past decade, and it will in the future. A portfolio of daily use products in categories where performance drives brand choice. In these categories, P&G is uniquely positioned to deliver irresistible superiority across product, package, communication, retail execution, and value. We will do this to drive market growth and create value for P&G and our retail partners. We will double down on productivity with multiyear visibility to fund capabilities, innovation, and demand creation, and to mitigate cost headwinds while delivering financial results at the levels you and we expect. Constructive disruption to stay ahead of and to create emerging trends and opportunities in our fast-changing industry. We will disrupt ourselves. At the core of it all is our organization, fully engaged, enabled, and excited to serve consumers and win in the marketplace. These strategies taken alone are just words that any company could say. The words alone have become a point of parity. P&G's point of difference, our competitive advantage comes from outstanding integrated execution of these strategies across all activity systems in the company and from anticipating what is needed next. We've executed the strategy well for many years. Now we see the landscape around us changing faster than it's ever been in recent memory. Neither we nor our industry in aggregate have adapted as fast as needed. This shows in the growth trends of our categories. Consumer media preferences and information collection are increasingly fragmented with new media platforms, including social media and retail media. Inflation across food, energy, healthcare, and many other areas of spending has taken a toll on consumers and how they assess value. This will continue to evolve. The retail landscape is changing. more concentration, but also brand proliferation. Retailers are becoming media platforms, and media platforms are becoming retailers. In summary, the consumer path to purchase is changing every day, is nonlinear, and littered with millions of possible distractions. We expect an even more intense pace of change in the next three to five years. We will adjust to and leap ahead of these disruptions to invent the CPG company of the future. The way to break through consistently is to build the strongest brands in the industry. P&G has the capabilities and unique opportunity to redefine the brand building framework to deliver consumer-relevant superiority every day, every week, every month, putting the consumer at the center of everything we do. Leading the consumer-relevant brand building and superiority at this pace can, and will only be delivered by leveraging superior data, superior technology, and superior capabilities to create and extend competitive advantage with consumers and with retail partners. We define our strengths and opportunity here across three areas. First, we know how to build brands rooted in deep connections with consumers and our industry-leading innovation capability. We have an enormous wealth of consumer data and understanding, and we receive a continuous flow of new data every day. Our teams connect with consumers across more touch points than anyone in our industry. Product research, shopper research, connected homes, ratings and reviews, social media posts, brand fan websites, and many more. We mine for insights that lead to new product innovation, brand ideas, performance claims, marketing campaigns. Now we are building the consumer connectivity, the integrated data platforms, and the technologies that will enhance our team's ability to do this work better, faster, and even more consumer-centric than ever before. We have a unique set of innovation capabilities in our industry. Substrate technologies formulate chemistry, devices, and now biology. We have years of experience integrating these capabilities to launch new platform technologies and innovations, and we see many more ways to bring combinations of these technologies to life in new consumer products. Tide Evo is just one current example. Technologies like AI-enabled molecular discovery will enable faster and more powerful integration of innovation capabilities for faster growth. The second and related opportunity is to create a deeper holistic connection with consumers to build brand relationships with them in the new media reality. Media fragmentation and emergence of new platforms creates an opportunity for brand builders who can best integrate across touchpoints. AI and gen AI capability help our teams to discover consumer relevant insights at every step of the consumer path to purchase, grounded in a unifying brand idea. We are creating the individual touchpoint experiences for each consumer at a time. These ideas are activated in claims, demonstrations, and visuals that communicate the performance and value of the brand across connected and broadcast TV, online video, social media, e-commerce sites, and in stores. Deep insights translated into a compelling brand idea repeated wherever consumers engage, making the brand easy to remember reinforcing superior performance that is worth it for the price paid. The third opportunity is integration with retail partners across the full supply chain and merchandising activity system. Again, the consumer understanding and brand building capabilities we have from initial brand impulse to purchase transaction, in-home consumption are valuable assets. Integrating these with each retailer's category strategy and business model will enable our brands to create value across all retail formats. This includes activation of our brands in retail media to convey our superiority and value messages close to point of consumer purchase decision. Our supply chain capability is already a leader in the industry. Supply Chain 3.0 has driven a more complete system connection from purchase signal back through inventory systems to our production planning and material ordering to ensure consumers find the product they want each time they shop. We are well on our way in this journey across capabilities, data, and technology. We are freeing up capacity and capabilities with the organization redesign we announced as part of the restructuring in June. We have built a structured data lake stock with petabytes of relevant data. We have built data platforms, AI capabilities, programmatic shelf tools, and media creation and evaluation systems. We have supply chain platforms that can run autonomously, reacting to retail demand signals, consumer innovation needs, or productivity opportunities faster than ever before. The next step is to connect the dots. to integrate the pieces from identifying consumer friction point, to product idea, to product design, to supply, to creative concept, to purchase transaction, to usage in home, to post-use evaluation. We will close the loop, and we believe this will create a different S-curve for our future growth and value creation centered around our consumer. We are doing many things right in how we are innovating, operating, and building brands today. and I'm confident in the near-term progress we are seeing. We know the opportunities ahead of us are even bigger, and we will capture them with conviction and discipline. It took years to build the underlying platforms and capabilities, and it will take some time to fully integrate and activate these assets across the company. We know what we need to do, and we are excited by the opportunities ahead. In summary, We are confident in the short-term delivery and excited about the mid to long-term as we leverage our strengths and unique capabilities to set us apart from the industry. We are inventing the CPG company of the future. We'll expand on these thoughts with some examples at Cagney and even more as we get to Investor Day later this year. With that, I'll hand it over to Andre to cover the guidance update.